Deductions to encourage certain activities

Research shall be considered to be original and planned inquiry that pursues the discovery of new knowledge and greater understanding in scientific and technological fields, and the development of the applications of research findings or of other types of scientific knowledge in order to manufacture new materials or products or to design new processes or systems of production, as well as for the substantial technological improvement of pre-existing materials, products, processes or systems.

Research and development activity will also be considered to be:

• The design and creation of a collection of samples in order to launch new products.
• The materialisation of new products or processes in a plan, outline or design, as well as the creation of a first non-marketable prototype and initial demonstration projects or pilot projects, as long as these cannot be converted or used for industrial applications or for their commercial exploitation.
• The creation, combination and configuration of advanced software, using new theorems and algorithms or operating systems, languages, interfaces and applications aimed at elaborating products, processes or new or substantially improved services. Software designed to facilitate access to information society services for people with disabilities fall under this concept when they are carried out not for profit. Standard or routine activities related to software maintenance and minor updates are not included.

Technological innovation is considered an activity that results in a technological advance in the acquisition of new products or production processes, or substantial improvements to those that already exist. New products or processes are considered those whose features or applications are substantially different from those that already exist, from a technological point of view.

This activity includes the elaboration of new products or processes in a plan, arrangement or design, including the creation of an initial prototype that cannot be used commercially, initial demonstration projects or pilot projects, including those pertaining to animation and video games; and textile samples in the footwear, tanning, leather products, toys, furniture and wood industries, provided they cannot become or be used for industrial applications or commercial exploitation.

We can establish the following criteria for the consideration of a technological innovation:

First: New feature or substantial improvement. The product or process acquired, or which is intended to be acquired, must be new or incorporate a substantial improvement. The new feature cannot be simply a formality or accessory, but rather it must incur the existence of an essential change; a modification to one of the basic and intrinsic features of the product or process, attributing a new nature to the modified element.

Second: From a technological point of view. The new feature must involve the technological scope of the process or product.

Third: From a subjective point of view. It does not need to be a new product or process that does not exist on the market, but rather the development of a new product or process that has hitherto been developed by the company carrying it out, in line with the definition of innovation included in the new version of the Oslo Manual elaborated in 2005.

The base of the deduction will consist in the amount of the research and development expenses and, where relevant, by investments in tangible and intangible fixed assets, excluding buildings and land.

Research and development expenses are considered to be those carried out by the taxpayer, including the depreciation of assets assigned to the aforementioned activities, insofar as they are directly related to said activities and are applied effectively in their elaboration, and are itemised specifically by product.

The base of the deduction will be reduced by the amount of the subsidies received to promote said activities, and are taxed as income during the tax period.

The investments will be understood to have been made when the capital assets are put into operating condition.

Thus, only the expenses that are directly attributable to the research and development project will form part of the base of the deduction. For this reason, the deduction cannot be applied to indirect expenses (such as general company structure expenses or financial expenses), nor to those that are not individualised, despite having a direct relation to the aforementioned activity; i.e., those that are distributed among the various projects that benefit from the deduction, along with the other activities of the company that can be elaborated.

The proper itemisation by project of direct expenses incurred in each of them therefore requires the specification of the concepts and amounts thereof, which can be determined via any rational method and presented in any format, provided that each expense can subsequently be justified and proved in direct relation to each project, along with the corresponding amount.

The base of the deduction consists in the amount of the expenses during the period of technological innovation activities that correspond with the following concepts:

1. Technological diagnosis activities based around the identification, definition and orientation of advanced technological solutions, regardless of their results.
2. Industrial design and engineering for production processes, including the design and elaboration of plans, drawings and supports aimed at defining the descriptive elements, technical specifications and functioning characteristics required for the manufacturing, testing, installation and use of a product, as well as the elaboration of textile samples, in the footwear, tanning, leather goods, toys, furniture and wood industries.
3. The acquisition of advanced technology in the form of patents, licences, know-how and designs. Amounts paid to people or entities related to the taxpayers do not give way to the right to the deduction. The base corresponding with this concept cannot exceed 1 million euros.

4. Acquisition of the certificate of compliance with quality-assurance standards, corresponding with ISO 9000, GMP or similar, without including expenses incurred for implementing said standards.

Technological innovation expenses are considered those that have been carried out by the taxpayer, insofar that they are directly related to said activities, are effectively applied to their elaboration, and are specifically itemised by project.

To determine the base of the deduction, the amount of technological innovation expenses is reduced by the amount of subsidies received to develop said activities, and are taxed as income during the tax period.

In general, 25% of the expenses incurred in the tax period under this heading.

If the expenses incurred in the performance of research and development activities in the tax period are greater than the average of those made in the two previous years, the percentage established in the previous paragraph will be applied up to this average, and 42% on any excess over it.

In addition to the corresponding deduction in accordance with the previous paragraphs, an additional deduction of 17% will be made from the amount of the company's personnel expenses corresponding to qualified researchers assigned exclusively to research and development activities.

The applicable deduction percentage is 12% of the expenses made during the tax period for this concept.

A deduction of 8% can me bade on investments in tangible and intangible fixed assets, excluding buildings and land, provided that they are exclusively assigned to research and development activities.

Such elements that are invested in must remain part of the taxpayer's assets, except in the case of justified losses, until their specific research and development purposes have concluded, unless their useful life is shorter, following the depreciation method detailed in article 12, letter a) of section 1.

Yes, the amounts paid to carry out research and development or technological innovation activities in Spain or in any member state of the European Union or the European Economic Area will have the right to the deduction for said activities, assigned to the taxpayer, individually or in collaboration with other entities.

With respect to the expenses from activities carried out abroad, only those related to activities carried out in Spain or in any other member state of the European Union or the European Economic Area will form part of the deduction base.

Thus, if activities related to a research project are carried out abroad, in countries or territories that are not member states of the European Union or in the European Economic Area, the expenses incurred cannot form part of the deduction; however all expenses incurred in Spain or in any of these States related to said project will be subject to the deduction.